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What is the statute of limitations on debt in my state?

If someone owes you money, you have a certain period in which you can take legal action to collect. This is known as the statute of limitations. While the exact time limit depends on the state and the type of debt, the result is the same—you can not sue someone for debts that are passed the statute of limitations.

So how do you avoid losing money to old debts? 

Start by organizing your accounting process. Make sure you keep track of who owes you, how much they owe, and when they’re supposed to pay. You can use anything from a simple spreadsheet to sophisticated accounting software. 

When you have a clear view of all your invoices, you will be much less likely to let a bill go unpaid for too long. If a customer or client is slow to pay, you will be able to identify it sooner and have more time to react. 


How long does a creditor have to collect a debt?

The statute of limitations is the period in which a creditor or debt collector can take legal action to recover a debt. The statute of limitation ranges from two to 15 years depending on the state and the type of debt.

A debt that is passed the statute of limitations is known as a time-barred debt. Creditors and collection agencies can not sue debtors over time-barred debts. In some cases, however, a debt collector can still take other actions short of filing a lawsuit, such as contacting the debtor with reminders to pay.

While the statute of limitation sets an ultimate deadline for debt collection, creditors can and should begin the collection process well before the statute comes into play.

The collection process typically begins when a debt becomes delinquent, meaning it has gone unpaid for a full billing cycle, typically 30 days.  Delinquencies can be reported to national credit bureaus, causing them to appear on the debtor’s credit report and negatively affect credit.

The chart below shows the timeline of a typical debt collection process.

 

Time since payment due

What creditors can do to collect payment

1 day – 30 days

If a client or customer is late to make a payment, you do not need to take immediate action. Late payments are common, even up to 30 days. If this happens to you, the best course of action is usually to wait and give the debtor time to pay. If necessary, you could send a friendly reminder of the payment due. However, you should not resort to sending a demand letter in the first 30 days.

30 days – 180 days

A payment that is more than one full billing cycle, typically 30 days, is considered delinquent.


At this point, there are still many common situations that may be causing late payment. Our debt collection guide for freelancers walks through some of the steps you can take before sending a bill to collections. In short, make sure you’ve done everything right on your end, such as sending the bill to the right person. Communicate openly with the debtor about their situation and try to address their concerns. You can consider offering a payment plan or even a reduced rate. While this may seem like a loss, accepting 20% less pay is more cost-effective than paying an agency 30% to collect.

180 days – the statute of limitations

After 180 days, if you have followed all of the steps above without success, sending the bill to collections can help you recover some of the loss. Before moving forward with a debt collection agency, you may want to consider all the debt collection options.


If you do work with a debt collector, they can take legal action within the statute of limitations for your debt type and state law.

After the statute of limitations

After the statute of limitations has passed, the debt becomes a time-barred debt. In some states, this is the end of the collections process.


In some states, however, debt collectors can still try to collect. If they continue to pursue the debt, the debtor has to appear in court and prove that the debt has passed the statute of limitations. If the debtor does not appear in court or can not prove that the debt is too old, the court can rule in favor of the debt collector.


If the debtor makes a payment or agrees to pay, they reset the statute of limitations.

 

What is the statute of limitations for each state?

State law determines the statute of limitations for each of four different types of debt: oral agreements, written contracts, promissory notes, and open-ended accounts. Most states provide three to six years to collect, and some states allow 10 to 15 years.

Oral agreements

Oral agreements, as the name suggests, are agreements made verbally that are not supported by any written documentation. For example, if your neighbor offers to pay you to mow their lawn. This is the most casual type of agreement, and in many cases, the hardest the prove as a creditor because there is no proof.

Written contracts

Contracts are a form of written documentation that includes terms and conditions, such as the amount owed and payment timeline. Contracts must be signed by both the creditor and the debtor. Many freelancers are paid primarily through contract work for clients. Debts owed under contract are usually easier to collect than oral agreements because the contract serves as proof of the debt.

Promissory notes

Promissory notes are another form of written documentation that specifies the amount owed, the amount and schedule of payments, the interest rate, and the date and time by which payment is due. Common examples of promissory notes include home loans and student loans.

Open-ended accounts

Open-ended accounts are mainly used to extend credit continually over time to a debtor. These types of agreements are ongoing, meaning the debtor can repay the loan and borrow again multiple times. The most common examples of open-ended accounts are credit cards and lines of credit.

The chart below lists the statute of limitations (in years) for all 50 states and debt types. 

 

State

  Oral  

  Written  

  Promissory  

  Open  

Alabama

6

6

6

3

Alaska

3

3

3

3

Arizona

3

6

6

3

Arkansas

3

5

3

3

California

2

4

4

4

Colorado

6

6

6

6

Connecticut

3

6

6

3

Delaware

3

3

3

4

Florida

4

5

5

4

Georgia

4

6

6

6

Hawaii

6

6

6

6

Idaho

4

5

5

5

Illinois

5

10

10

5

Indiana

6

6

10

6

Iowa

5

10

5

5

Kansas

3

5

5

3

Kentucky

5

10

15

5

Louisiana

10

10

10

3

Maine

6

6

6

6

Maryland

3

3

6

3

Massachusetts

6

6

6

6

Michigan

6

6

6

6

Minnesota

6

6

6

6

Mississippi

3

3

3

3

Missouri

5

10

10

5

Montana

5

8

8

5

Nebraska

4

5

5

4

Nevada

4

6

3

4

New Hampshire

3

3

6

3

New Jersey

6

6

6

6

New Mexico

4

6

6

4

New York

6

6

6

6

North Carolina

3

3

5

3

North Dakota

6

6

6

6

Ohio

6

8

15

6

Oklahoma

3

5

5

3

Oregon

6

6

6

6

Pennsylvania

4

4

4

4

Rhode Island

10

10

10

10

South Carolina

3

3

3

3

South Dakota

6

6

6

6

Tennessee

6

6

6

6

Texas

4

4

4

4

Utah

4

6

6

4

Vermont

6

6

5

3

Virginia

3

5

6

3

Washington

3

6

6

3

West Virginia

5

10

6

5

Wisconsin

6

6

10

6

Wyoming

8

10

10

8

How is the statute of limitations different from the credit reporting time limit?

The statute of limitations is commonly confused with the credit reporting time limit, which refers to a period after which certain negative information is removed from a credit report. Debt collectors can negatively impact debtors’ credit scores as a tactic to collect.

Similar to the statute of limitations, the exact time frame of the credit reporting time limit varies based on the type of activity:

Negative credit activity

Credit reporting time limit

Delinquencies (late payments)

7 years

Charge offs

7 years plus 180 days since the charge off occurred

Student loan default

7 years

Foreclosure

7 years

Bankruptcy

Up to 10 years since the bankruptcy was declared

Hard inquiries

2 years

 

What is most important to understand as a creditor is that the credit reporting time limit is completely independent of the statute of limitations.

Conclusion

It is important to understand the statute of limitations because it can impact your ability to successfully collect unpaid invoices. However, these state laws in almost every situation allow for 3 or more years to collect. If you practice due diligence, keep track of your accounts, and take timely action yourself or with professional help to recover unpaid bills, the statute of limitations should not pose any serious problems.

If someone owes you money, get a free collection quote with Empire Credit and Collection today! You will not pay us a dime until we get you paid, guaranteed.

 


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